"Market Volatility Expected as Trade Tensions Rise, Despite Positive Economic Indicators"

This week begins on a turbulent note, despite some favorable macroeconomic and corporate developments. While stock markets had been regaining stability more swiftly than anticipated, today's events will disrupt this trend. The implementation of tariff increases by the US on Canada, Mexico, and China will lead to a volatile Monday, characterized by stock market declines, significant losses in cryptocurrencies, a stronger dollar, and lower bond yields, which will serve as a safe haven. Fears of a potential trade war will result in a bearish and unpredictable week.

On a more traditional front, European inflation data released today is expected to remain at +2.4%, with the underlying rate potentially improving by a tenth to +2.6%. Later in the week, US employment figures are anticipated to be slightly weaker due to reduced economic activity in California caused by wildfires. Friday's Non-Farm Payrolls report is likely to show a slowdown to around 150,000 jobs created, compared to 256,000 previously, with personal earnings growth decelerating to +3.8% from +3.9%. This weaker data will support the case for another rate cut by the Fed. Additionally, the Bank of England is expected to lower rates by 25 basis points to 4.50% on Thursday, which may provide some relief to bonds and stocks. Furthermore, the gradual improvement in corporate earnings will have a similar positive effect.

However, the looming threat of a trade war will continue to weigh on stock markets until the full extent of the damage can be assessed. It is currently impossible to quantify this impact, although early indications from futures markets suggest it may be significant: S&P500 -1.9%, Nasdaq-100 -2.4%, Stoxx600 -2%. The true extent of the damage remains to be seen.